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DEBT RECOVERY APPELLATE TRIBUNAL, ALLAHABAD
R.K.Gupta, J.
UCO Bank -Appellant
Versus
State Bank of India and Others -Respondent
Appeal No. R-1200 of 2010
Decided On : 04-01-2012
SRFAESI Act - Mortgage - Section 17 (1) - Section 18 - Section 31 - The judgment discussed the creation of mortgage charges by the borrower with two different banks, the validity of the mortgage without the deposit of title deed, and the rights of the first charge holder. The court emphasized the intention of the parties to create a mortgage and the priority of the first charge holder. The judgment also referred to relevant legal provisions and previous judgments to support its decision.
Fact of the Case:
The case involved a dispute between two banks regarding the validity of mortgage charges created by the borrower with each bank. The court analyzed the intention of the borrower to create a mortgage, the rights of the first charge holder, and the applicability of the SRFAESI Act.
Finding of the Court:
The court found that the intention of the parties to create a mortgage was crucial, and the first charge holder had better rights. It also held that the deposit of title deed was not a condition precedent for a valid mortgage and referred to relevant legal provisions and previous judgments to support its findings.
Issues: The main issues included the validity of mortgage charges without the deposit of title deed, the rights of the first charge holder, and the applicability of the SRFAESI Act in the case.
Ratio Decidendi: The court emphasized the intention of the parties to create a mortgage, the priority of the first charge holder, and the applicability of relevant legal provisions and previous judgments in determining the validity of the mortgage charges.
Final Decision: The court allowed the appeal and set aside the order passed by the DRT.
Key Points: - The court emphasizes that the intention of the parties to create a mortgage is crucial in determining validity and priority of charges (!) (!) . - The deposit of title deeds is not a strict precondition for a valid mortgage; a valid mortgage can arise from intent to create security even without title deed deposition (!) (!) (!) (!) . - The first charge holder has priority over later charges, especially when the first charge is created prior to the later charge, with references to Section 48 Transfer of Property Act and prior judgments (!) (!) (!) . - The SRFAESI Act sections 17(1), 18, and 31 govern securitisation applications and appeals challenging DRT orders, with discussion on applicability and rights of auction purchasers under such proceedings (!) (!) (!) (!) . - The Allahabad DRAT followed prior DRAT and High Court rulings that deposit of title deeds is not always necessary for mortgage validity; focus is on intention and surrounding circumstances (!) (!) (!) . - The tribunal recognized that auction purchasers’ interests are protected and cannot be easily set aside merely due to pending challenges unless proper parties are impleaded (!) (!) . - The decision ultimately allowed the appeal and set aside the DRT order, affirming the appellant-bank’s first-charge rights though contentions of a forged title deed were considered (!) (!) .
This is an Appeal preferred under section 18 of the SRFAESI Act, 2002 challenging the order passed by the D.R.T. on 30th March, 2010 by which the Appeal filed by the respondent No. 1-Bank under section 17 (1) of the SRFAESI Act, 2002 has been allowed.
The relevant facts for the purpose of deciding the present Appeal are that the respondent No. 3 being the borrower applied for grant of loan with the appel#31;lant-Bank. The same was sanctioned. The respondent No. 3 purchased the said property in the auction sale and the sale-deed was registered in his favour on 13th August, 1997. Since the sale was registered in relation to the property mortgaged with the appellant-Bank, therefore, on the date when the mort#31;gage was created on 3rd October, 2001, he was valid owner of the property. The respondent No. 3 in relation to the same property applied for the loan with the respondent No. 1 -Bank also and created the mortgage on the same property on 6th April, 2002.
2. On the basis of the aforesaid fact, it is clear that the first charge on the property mortgaged was created by the borrower i.e., respondent No. 3 with the appellant-Bank and by mortgaging the same property, the second charge was created by the respondent No. 3 in fa#31;vour of the respondent No. 1-Bank on 6th April, 2002.
3. The dispute between two Banks is that the respondent-Bank alleges that the title deed which was deposited by the respondent No. 3 with the appellant-Bank was a fake, therefore, by deposit#31;ing the fake title deed, there could not be any valid mortgage on the property and in absence of any valid mortgage, there is no valid charge created by the respondent No. 3 in favour of the appel#31;lant-Bank. It is submitted that so far as the State Bank of India, respondent No. 1 is concerned, there was the first charge created by the respondent No. 3 on 6lh April, 2002 by depositing the title deed and on this basis, it is submitted that there was a valid mortgage with the re#31;spondent No. 1 bank by the respondent No. 3, therefore, the State Bank of India has the first charge over the property since the first charge is created validly in favour of the respondent No. 1 by the respondent No. 3, therefore, the appel#31;lant-bank could not have proceeded to sell the property and has no right to sell the same.
4. It is contended on behalf of the appellant that for the purpose of creat#31;ing the valid mortgage, deposit of title deed is not necessary and what is neces#31;sary to be seen is the intention of the parties to create the mortgage. To sub#31;stantiate the same, the learned Counsel for the appellant-Bank relied upon the letter of indent which is placed on re#31;cord at page No. 35 of the paper book. From the reading of the same it is clear that the respondent No. 3 has shown his intention to create the mortgage on the same property and even assuming that no valid title deed is deposited but there was an intention of the respondent No. 3 to create the mortgage on the property for the purpose of taking the loan from the appellant-Bank.
5. The next question which has been raised in the present case is that the necessary facts with regard to the auction and confirmation of the auction sale were already available before the D.R.T. that the property has already been sold in the auction and the sale certificate has been issued on 25"' January 2007. Yet, the respondent No. 1 who was the applicant, filed the Securitisation Application before the D.R.T. under section 17 (1) of the SRFAESI Act, 2002, but no attempt was made by the re#31;spondent No. 1 to amend its application to implead the auction purchaser also as one of the respondents.
6. The Securitisation Application by the respondent No. 1 was filed on 7h December, 2004 i.e., the date when the first auction notice was published to auction the same property. Thereafter, objection was raised on behalf of the respondent No. 1 that the appellant-Bank has no right to auction the prop#31;erty. The same wa
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